A small news that illustrates perfectly a problem felt globally, by banks and other financial institutions : the fall of the USD versus other currencies lead to a decrease of capital value.
Siam Commercial Bank will lower its US-dollar-denominated foreign deposits to prevent deterioration in its capital-base ratio, as it has to comply with Basel II by the end of this year.
The bank invested Bt74.78 billion in the foreign interbank and money markets last year, while Bangkok Bank invested Bt159.28 billion.
The country’s third-biggest bank will likely take the biggest hit to its capital base among large banks in adjusting to the new financial standard.
Overseas deposits are one factor that can affect banks’ capital bases under Basel II calculations. But they can reduce this risk by adjusting their deposit portfolios, Yokporn Tantisawetrat, SCB’s chief executive officer, said last week.
If banks deposit in the local currency of the overseas bank, the risk weight will be low under Basel II’s counting method, he said. For example, if banks deposit in Singapore, they should deposit in Singapore dollars.
However, converting deposits from global currencies. including US dollars, to local currencies will reduce return on investment, so banks should consider both risk and return as well as conforming to the new financial standard, he said. (Nation)
And it’s easy to understand that if all the banks around the world (as well as central banks) start to do the same (reducing their USD exposure, by converting their deposits in other currencies)… that could lead to further… decline of the USD !
It’s the perfect cisor effect.
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